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Technology Stocks : XM Satellite Radio Holdings Inc. (XMSR) -- Ignore unavailable to you. Want to Upgrade?

To: psycho_killer who wrote (592)	4/29/2003 5:05:42 PM
From: i-node	Read Replies (1) \| Respond to of 3386

Yet a satellite radio network (XMSR) that might someday generate approximately $480 million in annual revenues (and currently costs approx. $550 million per year to operate) has a better chance to become self-sustaining? I'm not sure where you get $480M in annual revenues -- that would amount to ~4.3M subs, which is considered to be slightly over breakeven operations. Frankly, the market for this product is easily in the tens of millions. They've scarcely begun the rollout of factory installs and they have half a million subs; by year end will clearly exceed 1.2M. XM properly nailed its customer base -- people in cars. Not to say that's the whole enchilada, but that is far and away the single biggest source of revenue (which IP radio will never have). At its current average subscription rate of $110/year, XM will generate a billion dollars on 8.2M subs (assuming conservatively 10% ad revenue). At this level, the company will net $200-300M. Net. A day will come, in the not-to-distant future, where 70, 80 or 90% of cars will come factory equipped with satellite radio. As it turned out, there has been a huge surprise at XM. After getting it in their cars, XM has found out people want it in their homes, too. In large numbers. How will total annual operating costs decrease as subscriber numbers continue to increase? Well, that would be great, but I don't see annual operating costs decreasing as sub numbers increase. That WOULD be something. Are there significant 'start-up' costs in that $550 annual operating expense that 'went away' and won't be a part of future annual operating expenses? Well there are startup cash outflows -- but these are expensed through depreciation. While the startup phase of any business incurs some startup costs, these should be expensed in the periods which benefit from them. Perhaps the sole exception are certain advertising costs which, although they benefit future periods, are considered as expendable. The cost structure of XM is such that once breakeven is reached it is a cash cow. This fact has not been lost on the markets.